A) Calculate Payback Period B) Calculate Profitibilty Index C) Calculate Net Present Value D) Calculate Internal Rate of Return E) Should Bethesda Mining take the contract and open the mine?

Answers must show work and be labeled A,B,C,D and E.

ul033 lls issue In his report. BETHESDA MINING COMPANY a Mining is a midsized coal mining company with 20 mines located in Ohio, Pennsylvania, Nest Virginia, and Kentucky. The company operates deep mines as well as strip mines. Most of the enal mined is sold under contract, with excess production sold on the spot market. The coal mining industry, especially high-sulfur coal operations such as Bethesda, has been hard-hit by environmental regulations. Recently, however, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for high- sulifur coal. Bethesda has just been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next four years. Bethesda Mining does not have enough excess capacity at its existing mines to guarantee the contract. The company is consid- ering opening a strip mine in Ohio on 5,000 acres of land purchased 10 years ago for $5.4 million Based on a recent appraisal, the company feels it could receive $7.5 million on an aftertax basis if t sold the land today. CHAPTER 8 Making Capital Investment Decisions2